12-cylinder carrot to lure support for fuel price hike

SummaryIn a bid to neutralise political opposition to planned fuel price hikes, the government is considering a two-step process: First, allow up to 12 subsidised domestic gas cylinders per year from the currently proposed nine and later, raise prices of LPG and diesel in a phased manner.

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In a bid to neutralise political opposition to planned fuel price hikes, the government is considering a two-step process: First, allow up to 12 subsidised domestic gas cylinders per year from the currently proposed nine and later, raise prices of LPG and diesel in a phased manner.

Sources told FE that a compromise is being worked out after some Cabinet ministers termed the six-cylinder cap and the proposed fuel price hike as “politically suicidal”. A section of the ruling coalition too feels these steps could cost the UPA at the hustings.

After capping subsidised LPG cylinders at six, the government was planning to raise it to nine citing consumer interest. Increasing this to 12 would benefit consumers in cities and help the UPA protect its middle class vote bank, sources said.

The oil ministry’s proposal to the Cabinet Committee on Political Affairs, the body empowered to take a decision on fuel prices, was based on the recommendation of the Vijay Kelkar committee, which was appointed by the finance ministry to suggest a road map for fiscal consolidation. “The recommendations of the Kelkar committee are under serious consideration,” petroleum and natural gas minister M Veerappa Moily said on Friday.

The ministry proposes to increase the price of subsidised domestic LPG in two phases of R65/cylinder each before March 31, 2013. Price will be hiked further by R50 each till the under-recovery on the product is reduced to zero.

On diesel, the ministry proposed a R3-4.50 per litre hike in one go or in monthly instalments of R1 or R1.50 per litre. From April, it wanted a R1/litre increase every month till such time that the current loss on account of selling diesel below market price of R10.16/litre is wiped out.

On kerosene, the proposal is that the price be either increased by 35 paise a litre per month or R1/litre per quarter till March 2015.The under recovery on petroleum products for the current fiscal is estimated at R1,67,000 crore.

The price of diesel — currently R47.15 per litre in Delhi — was last revised on September 14 when it witnessed a steep hike of R5.63/litre. The price of kerosene has not changed since June 2011 and stands at R14.79/litre in the national capital. Subsidised domestic cylinder costs R410.50 for every 14.2-kg cylinder and any household requirement beyond current cap of 6 cylinders is to be bought at near market price of around R900 per cylinder. State-owned oil companies currently sell diesel at a loss of R10.16 per litre, kerosene at R32.17 a litre and LPG at R490.50 per 14.2-kg cylinder.

Separately, as reported by FE, the petroleum ministry is set to ask the bulk consumers of diesel to buy it at market rates. Currently, bulk consumers — power plants based on diesel, companies with captive power units, the railways and road transport corporations — buy the fuel at subsidised rates but at slightly lower rates than the retail consumer, thanks to a waiver of dealers’ commission and discounts offered by the oil companies, which compete to get the tenders.

Bulk users account for more than a fifth of the diesel consumed in the country at present. Indian Railways accounts for around a quarter of bulk diesel consumption.

According to ministry data, the under-recovery on diesel between April and September was R52,700 crore, while it is estimated that by the end of this fiscal it would be around R98,400 crore.